Talk of Chinese bid after Tate & Lyle profit warning

Thursday 13 February 2014 11:13 BST

Shares in Tate & Lyle crashed 16% today after the sweetener-maker warned on profits, triggering City speculation of a potential Chinese takeover bid.

The food ingredients business blamed weak sales in developed markets, where lower fizzy drinks sales have hit demand for sweeteners, as well as warning of a dramatic 15% fall in prices for Splenda, its sugar substitute which is struggling due to a glut of cheaper generic rivals from China.

Tate & Lyle, which sold its historic sugar business to American Sugar Refining for £211 million in 2010, said it had recently renewed a number of customer contracts, but deals had been struck in a “competitive environment, driven we believe by a significant overhang of unsold Chinese sucralose”.

City sources said those competitor producers could be interested in buying up Tate.

Chinese buy-out firms have also been swirling the capital looking for deals. Bright Food, the Chinese company that snapped up a majority stake in Weetabix in 2012, is on the acquisition trail in Europe, with vice-president Ge Junjie visiting London as part of the state-controlled firm’s ambition to double its international presence to 25% within the next three years.

“When you see Tate’s share price fall, people are going to see it as an opportunity,” said one food analyst. “The Chinese are one possibility, although they have typically been buying brands, and Tate is an ingredients business.”

Shares in the company plunged 127.5p to 659p after Tate said its profit for the year to April will be in line with last year, when it posted a £329 million profit — the City had been expecting closer to £340 million.

“There’s been a number of concerns hanging around Tate, including the threat of generic competition from China, ongoing weakness in the North American sweetener market, and continued reduction in carbonated soft drinks,” said Darren Shirley, analyst at Shore Capital. “Now it seems that some of the threats hanging over the company have all come to fruition.”